Suntory closing in on deal to buy GSK drinks brands: sources

Lucozade and Ribena drinks bottles are displayed on a shelf in a shop in London April 24, 2013.

Reuters/Suzanne Plunkett

LONDON (Reuters) - Japan's Suntory Beverage & Food Ltd (2587.T) is in advanced talks to buy the Lucozade and Ribena brands from GlaxoSmithKline (GSK.L) for more than 1 billion pounds ($1.6 billion) in a deal that would pre-empt an auction of the iconic British drinks, two people close to the process said.

A deal could be announced in the next few days, one of the sources said on Thursday.

Britain's biggest drugmaker GSK announced plans in April to sell Lucozade and Ribena which are well-loved in Britain but lack global reach, especially in the emerging markets that are now becoming the focus of its consumer health business.

Suntory Beverage, Japan's second-largest drinks maker, was always seen as the most likely suitor for the brands because of its desire to grow its business through acquisitions to counter sluggish demand at home.

The Tokyo-listed company is also flush with cash after an initial public offering in June that raised $4 billion.

Suntory declined to say whether it was in talks with GSK, but acknowledged it was interested in the drugmaker's drinks business. Suntory bought the Orangina Schweppes drinks brand in 2009 for more than $3 billion.

"Looking to the future, we are considering a range of possibilities for growth including various strategic investments such as this (GSK) business, but nothing has been decided," the company said in a statement.

JP Morgan (JPM.N) and Greenhill (GHL.N) are acting for GSK on the disposal, the sources said. Officials at GSK declined to comment.

THIRSTING FOR GROWTH

Introduced in 1927 and 1937 respectively, Lucozade and Ribena have annual sales of just over 500 million pounds a year. Industry analysts expect a buyer to pay around two-times sales.

The strong cash flow of the two brands was expected to attract private equity houses such as Blackstone (BX.N), Lion Capital, Cinven CINV.UL, CVC Capital Partners CVC.UL and KKR (KKR.N) in addition to other drinks companies.

All the firms declined to comment about the potential GSK-Suntory deal.

Suntory Beverage, better known at home for its alcoholic drinks such as Yamazaki whisky and namesake beer, has said it wants to boost sales by more than three-quarters in the next seven years to $20 billion, largely through adding brands and expanding into new markets.

Suntory Beverage currently operates Pepsi Bottling Ventures LLC, a U.S. company that handles both production and distribution of Pepsi brand products. It also owns several brands in Asia and New Zealand.

Suntory Beverage shares rose 1.3 percent on Friday to 3,500 yen, compared with a 1.5 percent drop in the benchmark Nikkei average .N225, and have gained 13 percent from the IPO price.

The company is part of the privately held Suntory Group, which still controls the alcoholic beverages unit.

(Additional reporting by Martinne Geller in London and Ritsuko Shimizu in Tokyo; Editing by Elaine Hardcastle, Pravin Char and Miral Fahmy)